Luceco plc

Good morning, everybody, and welcome to the Lusico full year results for 2024. Thank you for attending this meeting, and all those online, thank you for attending also. We had a good year last year. It was the first year that the business began to emerge from the shadow of the pandemic. I think we sort of underestimated at the time quite the impact that that pandemic would have, in terms of the extraordinary upside we enjoyed in the pandemic, but then the hangover subsequently has taken quite a while to work through. And I think last year was the first year that the business returned to something like normality. Our revenue is up 16%. On a light for light basis, that's up almost 6% in a market which, and I'll talk about this more later, was off about 2.5%. So a significant market share gain. Operating profit improves by over 20%, up to 29 million. On an operating margin, up half a point. You know, so operational leverage in the business, higher mix and better sourcing across the group that drove higher margins. Our net date ratio of 1.6 in the middle of the range and a full year dividend of 5p, giving adjusted EPS of 12.5 pence. Thank you. Thank you, Will. So strong revenue overall up 16%. We made a couple of acquisitions in the year, one in March, one in September. So some of that growth is obviously M&A led, but organic growth of approximately 5.8%. And the market, as I said, was down about two and a half. and particularly strong sales in the UK RMI sector, which, as you know, is a very important segment for us. Our residential EV charging business is growing particularly strongly. In Q1 this year, it's up about 100%. Last year also had a strong year. You will recall we bought a small business in 2022. It turned over at the time about 5 million. Hopefully this year the sales will be somewhere between 15 to 20 million. So significant growth and it's growing very, very quickly. We have a further innovation pipeline of exceptional new products, which we'll be launching later on this year, particularly in the space of the energy transition products, such as EV chargers and hems and batteries, which I'll talk more about later. The acquisitions that we did last year have been integrating well. And we have some scope in our balance sheet for more M&A later on this year. And the strong demand that we saw at the end of last year has continued into the start of this year. Our sales out of retailers, because we look at sales in and sales out, are approximately 10% up on last year, which is probably slightly better than the market. And with that, we'll... Oh, sorry, I've got one more slide. Our competitive advantage Historically, innovation has always been an extremely important driver of our growth. The pandemic meant that our engineering teams, who are all based in the Far East, in China particularly, were operating without much UK interaction for a period of about three years. So we were unable to go to China, for three years and I think that had a major impact on the MPD programme of our business. So since the end of the pandemic, we have been investing a lot more in the product development activity and that is beginning to show through in our growth numbers. We have superior customer and supply chain. So we deal with all the largest distributors in the UK. And when we launch new products, we can nearly always get an extremely large distribution for those. Highest quality and the lowest cost. As you know, we have our own manufacturing base, which allows us to control the quality at the lowest cost. And the energy transition, which is happening across our product range, particularly we're going to talk about EV and also batteries, but also circuit protection. and wiring accessories across the piece are going to be affected by the electrification of transport and heating in the residential environment, which will be driving structural growth across our markets. And finally, strong cash generation has allowed us to do five deals in the last six years, and we can continue with that programme in the future. With that, I'll hand over to you, Will.

Thank you, John. Good morning, everybody. Let me start with a quick review of the income statement, which is on slide seven. Our revenue at £242.5 million reflects a strong end to 2024, which we talked about in the recent trading update. Our retail channel and overseas businesses especially had a great end to the year. The timing of the recent Chinese New Year meant our retail and trade customers needed to stock up before the end of 2024 to avoid empty shelves in early 2025. But even so, the level of our sales was beyond my expectations. The information we monitor, as John mentioned, covering demand for our products across certain customers, leads us to believe that they have not overstocked. A year ago, I spoke of the performance of our hybrid channel, which delivered a near 30% improvement in 2023. In 2024, the retail and international channels of the group have been the standout performers. As John mentioned, the recently added electric vehicle charger offerings grew very strongly. Quarter four EV charger sales were approximately 50% up on the equivalent period in 2023. And that division achieved nearly 10 million pounds of sales over the year. Quarter four 2024 overall for the group ended over 20% ahead of last year on a like for like basis. As we said at the half year, our infrastructure-led outdoor LED businesses struggled somewhat in 2024. Local authority funding probably had an impact, though it's pleasing to see that both businesses have started 2025 in better shape following some self-help measures applied. House building took a big knock in 24, as you're all aware. It remains in the region of only 5% of our total revenue, so the market decline did not have a material impact on the group. We're starting to see some positive demand indicators appearing in this sector. Gross margin for the year at 40.1%, a year-on-year improvement and now the highest annual performance we've achieved. This was delivered in spite of an uptick in some key raw material costs, for example copper, which have been relatively stable throughout much of 2023. Sea freight was a challenge throughout much of the first half of 2024 and peaked in the summer. The problems in the Red Sea are well known. These costs eased somewhat during the second half, though left us with some additional costs to work through our inventory. Now, even with the extended journeys around South Africa, our sea freight is currently priced within about 25% of its long-term average. Our Jarshing production facility continues to improve, delivering productivity benefits and overhead savings again in 2024. The US dollar represented a revenue headwind for us again in 24. The RMB, though, has been declining against sterling, and we are seeing this benefit coming through in our cost base. As I've said in the past, we follow a policy to place forward cover, which naturally delays the consequences of these currency movements. Overheads at 68.2 million pounds were up circa 10 million pounds on 2023. The majority of the increase year on year attributable to the newly acquired D-line and CMD businesses. We also made some targeted investments in select overhead categories, notably marketing, which may well be behind some of the sales growth we saw towards the end of the year. and also in the electric vehicle charger team, which is clearly having an impact. Our wage cost inflation was in line with that seen in the wider economy in 2024. Adjusted operating profit was therefore 29 million pounds at the top end of the range that we shared with you back in January. Our tax rate has stepped up somewhat in 2024. We are heavily weighted to the UK and increasing it with further UK-based acquisitions. Here the headline corporate rate, as you know, is now 25%. We continue to take advantage of various government incentives that do mitigate some of the tax burden. The increase in our tax rate to just under 23%, together with the 1.3 million increase in our finance charge, reflecting the funds used to pay for the acquisitions, partway through the year has not prevented a creditable improvement in adjusted earnings per share of 12.6% to 12.5 pence. The Board has consequently recommended the dividend be increased, as John mentioned, with a final of 3.3p, taking the total to the year to 5p. Slide 8. This slide provides a bit more detail on the drivers of our revenue performance. The acquisitions of D-Line and CMD have caused the most significant change in revenue this year. Both of these fit really well into our group and have increased group sales in the year by around £24 million. D-Line arrived in late February and CMD at the end of September. It takes time to bed in acquisitions and to begin to realise synergies. We can already see D-Line is going to do very well in this score and we're excited by CMD's prospects. Focusing on organic performance, our retail space and within it specifically our wiring accessories offerings recorded a pleasing increase compared to 2023. Like for like growth of approximately 4% is a good achievement when seen against the background of a lackluster UK consumer spend through much of 24. The team has delivered some positive product range extensions which help to mitigate the market impact. We do now see signs of green shoots across our DIY-related channels, so perhaps the decline seen after the post-pandemic era may now be coming to an end. Our non-UK operations performed really well in 2024. We've been investing in these for a few years and it's pleasing to see this paying off. Middle East and Mexican operations both delivered year-on-year growth of over 20%. Ireland recorded more like a 50% improvement. It's encouraging to see how successful Lusico can be when it gets a little help from an improving economic backdrop. The new house build market has had another difficult year in 2024. And we've said before that we are underrepresented in this sector. and we've got a few initiatives underway that are helping us here. Infrastructure-driven external LED operations also found it tough in 2024. We have some good self-help measures underway here, and it's looking as though it's starting to pay off already in 2025. Our EV chargers seem to be flying off the shelves. The second half of the year saw them up 50% on the same period the year before. Currency impact here is mainly the effect of the US dollar move against sterling on our FOB sales. The average rate across 24 at 128, some four basis points worse than 2023 and reduced our sales by just over two and a half million pounds. Moving on to the profit bridge slide nine. This slide shows the key drivers of our adjusted operating profit performance. Once again, it's pleasing to share strong operating profit improvement with an increase of some 20% over 2023. Volume helps at our gross margin levels and the productivity initiatives at our Jiaxing China facility are showing through in our numbers. A higher proportion of wiring accessories is manufactured in-house, so revenue growth in this segment improves utilisation at Jarshing. The acquisitions added nearly £2 million to 2024 operating profit, We've lots of work underway to enable our factory to manufacture for these acquired businesses or to resource product for them. This does initially add cost in some of these projects, but the team has proven in the past that it's good at delivering these type of synergy benefits. We faced headwinds from elevated freight and material costs in 2024. The situation in the Red Sea means our freight between China and Europe is going around South Africa. This added cost and working capital, which I will discuss later. Copper picked up too in the year and it is on the rise again just now. I've said before that we carry a level of copper hedging that offers some short-term protection at times like this. Currency has helped with the costs in the year. Average RMB to sterling at 9.20 was some 4% favorable. We carry forward FX contracts that taper down up to about 12 months ahead at the moment. This delays the benefit when rates moves in our favor, but of course, it also offers some protection when they move against us. The increase in the national insurance rates recently announced will add probably about 1.2 million to our UK cost base in a full year. Slide 10, quick look at the last two years in six month parts. You can see the pleasing growth and we have said that December alone was 8.5 million ahead of the year before without the acquisitions. November was in the same direction. Our business is traditionally busier in H2, though we were concerned at the half year that the spike in freight and copper costs might prevent an increase in operating profits. I was perhaps a little cautious as we did end up at 12.3% in H2 versus the 12.2% the year before. Adjusted free cash flow, slide 11. At the half year, we mentioned in the region of six million of additional stock in transit. At that stage, our accounts payable picked up some of this excess, though our payment terms meant we were expected to be carrying more working capital at the end of the year if the Red Sea situation continued. It has continued. And we are carrying more stock in transit, and so working capital is up as a consequence. Beyond this, the headline is we had impressive sales growth at the end of 2024. The natural impact of this is that our trade working capital absorbed cash. We have said previously it is likely that our working capital will absorb some cash if market conditions improve and the DIY sector returns to growth. The strong trading in Q4 means that over the year, our trade receivables absorbed some 70 million pounds of our operating cash flow. 8.5 million of this down to December alone. This compares to the just 3 million it absorbed across the whole of 2023. Thank you, Tim. It's great news on trading, but short term, it does affect our free cash flow. By the way, the strength of our customer base means we have confidence about the collectability of these receivables and, in fact, the quality of our trade receivables book improved over the year. Conclusion is we see 2024's free cash flow performance as a one-off and expect cash flow to improve in the future, though probably not in the first half of 2025, given our usual seasonal working capital build ahead of the summer months. With the exception of 2021, which was affected by the first phases of the pandemic, Luceco has typically experienced a working capital cash outflow during the first half of each year and an inflow in H2. At this stage, 2025 is expected to show the usual pattern. We see the short-term absorption under these circumstances as a healthy sign that the business is enjoying some organic growth. Finishing up on the numbers, this slide, slide 12, summarizes our working capital cash flow and debt performance overall. Working capital management is in a good place. The small uptick in inventory days is a response to the Red Sea disruption and the necessity of ensuring our products are available on our shelves. We don't want to miss further growth opportunities if these green shoots turn into a sustained recovery. Bank net debt ratio of 1.6 times is comfortably within our range in spite of spending nearly £38 million on acquisitions in the year. The ratio will increase as we move towards the first half of 2025, towards the upper end of our policy range, as there is a seasonal nature to our trading and I expect this year to follow the usual pattern. We will remain comfortably within our lenders' covenants. As part of the funding for the CMD acquisition, we increased our £80 million bank facility to £120 million. And even though our facilities don't mature until September 2026, we are already well advanced with our lenders with plans to refresh. And with that, I'll hand back to John to talk our business review and outlook.

Thanks, Will. So underlying demand, you can see top left, the green line, home improvement spend, some improvement in the second half of last year, which we hoped for, probably not quite the improvement we were anticipating, but certainly better as a trend. And it would appear that that, as I said earlier, has continued into this year. In the top right, housing transactions, they are still below trend, but as you can see, again, improving. You can see they fell off a cliff in the first half of 2023, following the mini budget, and the housing market went into major decline, and housing starts, which is the other important metric for us, basically stopped for a bit. That is all recovering slowly. although you can see recently has been a little bit weak again, but the overall trend is improving. In the bottom left, you can see how we split our business between the various different segments and what we think happened to the market in those segments. So you can see overall, we think our markets were about 2.4% down. which in the light of our organic growth of almost 6%, that shows a pretty significant market share gain. We would say that the... that the pandemic basically pulled forward demand. So even above the dynamics I'm showing here, I think particularly in the DIY segment, there was a pull forward from future years into those lockdown periods. And I always thought it would take probably two or three years for that to wash itself through. And I believe now the DIY demand is starting to normalize. So why we can grow our business above the overall market trend. So new wiring regs, these come out roughly every two years and they mandate various upgrades that affect our product portfolio, whether that's in circuit protection or wiring accessories or lighting. For example, Buildings need to be, as you know, ever more efficient, which means ever more efficient lighting, which means higher spec lighting. So there's a constant upgrade in our product portfolio. This obviously drives higher revenue. The EV opportunity, I think, is particularly exciting for Luceco. Roughly 6 million new EVs in the next five years will be bought in the UK. We currently have a market share of about 8% in residential EV charging. When we bought the business, it was called Sync EV and it had a market share of about 5%. So we have increased it and actually the rate of increase is accelerating in terms of our market share gain. So I think there's no reason we can't push our market share significantly higher. in a market where we anticipate the demand should grow about four to 500%. Roughly 20% of cars being purchased now require a home EV charger. By 2030 something, depending on the government regulation, that will be 100%. So the market size for residential EV charges will increase by approximately 400% to 500%. And if we can maintain our market share or increase it, this should become a very significant business for us. And actually over the next slide, I show some of the innovation that we've done within this product portfolio. So we bought the business and it had the Square product on the far left. And since then, we've actually launched about four different upgrades. So each time we've improved the product and reduced the cost. We moved the production into our own factory because originally the product was coming from Bulgaria in 2021. Last year we launched these commercial chargers, the tall, thin ones. And on our recent innovation that we haven't actually launched yet, is a socket that you can flush mount to the outside of your house and you can drill a hole through the wall and you can put the box with the EV charger somewhere separate. At the moment, everyone has the EV charger and the socket in a sort of ugly box that you put on the outside of your house, which doesn't make a great deal of sense. So what we have done is to separate the actual socket from the charger electronics So what you put on the outside of your house doesn't need to be an ugly-looking box anymore. It can be a beautiful socket, and you hide the ugly-looking box in the garage or under your stairs. We are the only people who have done this. We have a patent on it, and we think this could be... an extremely successful innovation. And it also gives you an example of the kind of innovation that we do across our product portfolio. As I say, EV sales in Q1 are roughly twice what they were in the same period last year. So the business is really growing strongly now. Yeah, home energy management systems. We've spoken about this in the past. We actually launched this product yesterday. It's the battery that you can see in the middle of the chart on the left-hand side. And the chart is an attempt to illustrate what it does and how it works. So it basically sits in between solar and electrical loads, one of which is an EV charger. and the grid, and it basically controls the energy flow. So if you have a solar panel array on your roof, if you sell the energy back into the grid, you don't get much for it. If you can store the energy in a battery and use it when you're at home in the morning or in the evening, then the economics of a solar install are roughly twice as good as they are without it. So the payback without a battery, residential solar, can be up to sort of eight to 10 years. With a battery, you can halve it because you use the electricity that you generate. rather than selling it back to the grid at a very low price. So I believe that every house with a solar panel on the roof will end up with a battery in the garage. And I believe that a lot of houses will end up with solar panels on the roof. In fact, new homes, by law, will have to have solar in the roof. And if you install the solar at the point of constructing the house, it's obviously much, much cheaper because you're up on the roof anyway. In fact, solar panels are so cheap now, they are almost less than the cost of a roof tile. On the right-hand side, the chart shows how we estimate the market will grow. And the other important point to make is the cost of the batteries will come down. So currently we'll be selling these things for approximately £4,000, but it's anticipated over the next five years the cost of the batteries will half. which means that obviously the payback will become much shorter, and I think it'll become a must-have product for most residential homes. Even if you don't have solar, a battery allows you to charge up in the middle of the night when power is obviously much cheaper, and then you use it in the daytime when it's generally more expensive. So that's a very exciting new product launch for us. As I say, the products landed yesterday. We haven't yet sold any. We haven't really forecast it, but it could really be something. In terms of the M&A that we did last year, We did two deals, one slightly larger than the other, but I think they're both going to be enormously successful. We can reduce the cost of sales of both of these businesses by approximately 30%. So that is re-engineering in some cases, redesigning, but mainly integrating it with the group supply chain. Making products in our own factory in the Far East. using the supply base that we have and the sourcing strategies that we have across the group, we can reduce the cost of sales of these businesses by about 30%. We can also grow them. So D-Line operates in the retail space where we have very strong relationships and actually leveraging the relationships that we've got, we have already had some significant new business wins with the D-Line product offer. Likewise with CMD, they supply office electrics, like the kind of stuff you'd get on this desk under that piece of wood, but they don't supply lighting. So what the plan is to leverage their customer relationships for office fit out to sell our lighting product. And so far, we're very happy with both those acquisitions. So M&A we think can be a significant driver of growth over the next few years. But by 2029, using some basic assumptions, we calculate we can invest approximately 100 million in further M&A. EBITDA multiples of roughly six to seven times, aiming for 15% ROKI, acquisitions that will improve group operating margins in segments which are adjacent to us, so either basically buying products or buying customers. and possibly buying other low-cost manufacturing, although we have moved a significant amount of our sourcing out of China into Vietnam, particularly for our U.S. market. So all of our U.S. sales are now coming from products that are sourced outside of China for obvious reasons. And finally, to the outlook slide, as I said earlier, the strong demand that we experienced towards the end of last year has carried through into the first quarter of this year. We hope that the wider economy will improve. We think that the sort of pandemic hangover is going more into the rear view mirror. And we've also got, as I said, some extremely exciting new product launches, particularly batteries and the like, which could drive significant upside. And I think that's basically it. So I can hand over to any questions. Hopefully someone's got one. We've got Kevin here. Kevin, loyally, has got a list of... planted questions, I hope.